China says its forex reserves relatively abundant despite drop

Beijing: As China's foreign reserves, the world's largest, dipped to over three year low to USD 3.3 trillion last month, the government has said USD 107.9 billion shortfall was partly caused due to US interest rate hike and assured the public that there was still "relatively abundant" reserves.

China has "relatively abundant" foreign exchanges reserves amounting to USD 3.3 trillion despite a record monthly drop, the State Administration of Foreign Exchange(SAFE) said yesterday.

China's foreign exchange reserves fell by USD 107.9 billion in December to 3.33 trillion at the year end, the lowest level in more than three years, according to official data. The reserves fell by USD 87.2 billion in November.

Nevertheless, China still holds the world's largest foreign exchange reserves, despite the sharpest monthly fall on record partly due to an interest rate hike last month by the US Federal Reserve and possible future rises, state-run Xinhua news agency reported.

Under persistent depreciation pressure, the Chinese yuan dipped to a five-year low against the US dollar this week.

The SAFE shrugged off all the concerns in statement, saying that fundamentals of the Chinese economy are sound and "generally speaking, China's financial system is stable and healthy."

The administration said it will further facilitate cross-border trade and investment, and continue to promote the yuan's convertibility under the capital account in an orderly manner.

The SAFE said it will strengthen the monitoring of China's balance of payments, and improve the regulation of foreign debt and cross-border capital flows.

It will also try to better manage the country's huge foreign exchange reserves and diversify ways of using them, Xinhua reported.

Though China has the largest forex reserves about half of it was invested in US treasury bonds making Beijing, Washington's largest creditor.

The forex reserves witnessed a steady decline last year as the economy, which till 2010 registered double digit growth rates slipped below seven percent in the third quarter last year with forecasts of further slowdown this year and the next.

Amid the continued decline of exports, China has initiated a host reforms to transform its export dependent economy to that of more reliant on consumption.

China is also stepping up its overseas direct investment (ODI) which crossed USD 104 billion in 11 months last year as number of Chinese companies stepped their investments abroad under the Silk Road initiative launched by President Xi Jinping which is officially called the Belt and Road.